Sep

8

Dr PhilFor much of today's action the Nasdaq lagged behind the S&P index in percentage terms. The Nasdaq has a higher beta than the S&P so one would normally expect it to move farther and faster both up and down. Like a race horse making it final surge to the finish the Nasdaq managed to surge ahead of the S&P in the final minutes of trading to restore the normal order of things.

Naturally this raised two questions. First, what happens if the Nasdaq under performs the S&P on an up day? Second, what happens the next day after the Nasdaq is stronger than the S&P? To resolve these questions the following study looked at a little over 4100 days of trading for the Nasdaq index and used the SPY ETF as the trading vehicle for the next day. The following table shows the next day results after SPY is up and it is stronger than or weaker than the Nasdaq in percentage terms.

.         +SPY>Naz       +SPY<Naz

Avg     -0.00012        0.00008

SD       0.012612993    0.010327566

n         968            1271

% Up     0.508          0.509

t-stat  -0.290          0.275

The average returns are close to zero and the percentage of times up is about 51% for each case. However the t-stat is non-significant for both cases despite sample sizes of ~1000.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

David Higgs remarks:

As of late there have been some days where the move of the markets was attributed to just one or two stocks due to short covering. But then this is a different fly in the ointment…

Aug

21

1. One often talks about the difficulty of proving the gravitational attraction, and of course the much more important question of expectation around rounds. However, one light at end of tunnel, is that there have been at least eight excursions back and forth around Mr. Big Round in S&P: 1000. No other round has anything like this.

2. The Israeli market predicted or preordained every move n the S&P for last x weeks.

3. The POMO is a license for the banks to feather their nests at the expense of the poor unlucky souls whose debt is not guaranteed, and whose losing assets must be sold at distress.

4. There is always a web between currencies and other markets, a feeding chain if you will. But the web is always changing just when the public gets on to it, as Bacon would say.

5. The market abhors stability like the man a —-

Michael Bonderer reports:

John Mackey, the objectivist and entrepreneur, penned an op-ed on his suggestions for healthcare in the WSJ on August, 11, 2009. This has led to a 'progressive' furor and calls to boycott the company he co-founded, Whole Foods Market Inc. The least that any Daily Speculator can do is go out of his way to spend money in his stores. I have linked his piece and the WSJ's editorial follow-up.

David Higgs remarks:

Walter Isaacson's book Einstein tells of the difficulties Albert dealt with on his generalizing gravity in his Entwurf theory. It wasn't until he applied mathematics to it that he started to get the problem correct. Not sure if mathematics the answer here with the human element such a dominating element, be it a Madoff, a GS, an Obama or anyone else out to swindle the little guy, yet the wall of worry sure seems to hold true…

Steve Leslie surveys:

Don't look now but Dow 9500, S%P 1022, NAZ 2014, GS 163. In the words of Roseann Cash: "My baby thinks he's a train." Stock market up 50% since March.

Cash for Clunkers ends Monday — 450,000 cars sold as a result. One program that the Government got right. Now the dealers need to get their money from government — only 2% paid out so far. Is it true that the next thing is cash for appliances?

Nov

21

 It was the Big Three's mistake to agree to pay health care 20-30 years ago when that system was rigged. It was a bad bet. Labor costs are focused on because they are variable… but look at fixed costs. Toyota has made the most mistakes in the past five years, all combined. Look at Tundra in Texas at the exact top in 2006, and the new Alabama plant.  "Highlander, wait, $4 gas. Let's make Prius, wait, $2 gas. Let's not build anything."

There are too many cars produced at too good a quality globally for anyone to make profits without a subsidy. Toyota is subsidized by Japan and Alabama and Texas… Car prices in real dollars have fallen for a decade. New car tech and quality is simply amazing… I laugh my tail off as if some "pent up demand" will do it, when the "get the joke" people are about to realize all new cars now last 10 years + 150k miles EZ.

The financial and media morons who know nothing about cars, production and ruined Finance in this country are all calling for pre- packed BK for the Big Three. That is like stealing the NYSE. Gimme Jeep, Buick and Ford Trucks and I can build a Toyota-killer and pay the UAW all their dues. (Of course, I would have to revamp the dealer network but that's a state issue.)

Never in the history of Autos has a BK or restructuring weaker players into a new consortium (even with state concessions) worked… See Packard or Studebaker or AMC.

There is a good paper written in 1958 how America will never build a profitable small car. Honda has given it a go under the Model-T concept, you can get an Accord as long as you can only choose the color…

The most difficult restructuring has already taken place. It's called Visteon for F parts and Delphi for GM… all the rest of this talk is about a few guys running around feeding robots and about Health Care and Pensions.

David Higgs adds:

Slow down, you're going too fast. Who hasn't said the auto industry was headed for a three-way-crash? What was the story with the german VW Beetle — wasn't it designed due to financial issues there long ago, and hasn't it been one of the best get me from A to B cars ever? The sad thing about the autos is, like all other financial disasters we feel at the moment — greed under the hood.

Apr

3

I have been looking to acquire a new bag in which to lug my laptop to and from the office. I liked the Timbuk2 brand because it seems to have adequate padding and space, and was comfortable on the shoulder. I saw the bag in a local retailer at just over $100. Found the same bag on Dell this afternoon for $38 including tax and shipping! Not only is Dell laying off workers but they are clearing out unwanted inventory! The Govies must use this type of transaction in their iCPI reporting.

David Higgs adds:

Two really nice leather makers are Wild Rose and Chisholm Trail. But you might look kind of silly carrying your laptop in a hunting pouch!

Nov

1

Today was a good harvest day in my backyard. I have about 20 pounds of sweet potatoes for Thanksgiving and Christmas, and I filled two five gallons buckets with tobacco leaves for my year's supply of chew. This is all coming off a poor summer. I harvested maybe five green peppers the whole year, and my canteloupes and cucumbers all came to nothing. This was my first summer in this house, and I have found that every yard has different characteristics for bugs, drainage, etc. that makes the first year difficult.

David Higgs adds:   

True for yard to yard. But potatoes are easy anywhere as long as the soil isn't concrete. And I concur, this summer was the pits — couldn't get okra to grow, the cucumbers were bitter, the tomates got the black spot and my peppers were small. But I will tip my hat to you on your tobacco harvest. Growing that stuff really takes a green tumb! Never would of thought you were a chewer — ever hear of lip cancer?

Oct

13

I have always been told by my father, who has been in the markets since the early 1950s, that bull markets try to scare you out by running too much and selling off quickly and hard, while bear markets fool you into staying in by easing down and promising recovery. I think both the credit crunch and today's quick slide qualify as bull market activity.

A three-week consolidation, including this week, would be natural as earnings are processed. To me this whole episode looks like the ease, hike, ease, pattern of late 1979 to early 1980, just after the S&P 500 hit a seven year high. This time the hike was in credit and the drop not quit as violent as then. The best thing Greenspan ever said was in 1998, that the solution to moderating and preventing crises is more equity.

David Higgs remarks:

ING Funds has a flier showing overall dividend yields over the past five years of an assortment of countries. New Zealand for the most part had the highest yield in 2006, 4.46%. Compare that to the USA at 1.76%, seems like the guy with the CD in the end wins over the big risk taker, as with the tortoise and hare. But how can a country of sheep farmers continue to be a payer of high dividends year after year?

Dec

28

W. C. Fields said “never give a sucker an even break,” but this sucker got one, and I have to share it. Late this past November I started trading futures for the first time. However the futures datafeed I was getting was still in delayed mode. So the first couple of rounds I placed, I was watching old data stream by (I did think it was strange how my positions were acting with regard other market activities) and it wasn’t until I place an S&P market order and got filled 1.5 points better that I called to find out about the data, and got it live. So dumb luck fell my way. Embarrassing and comical.

Sep

27

The passing of golf great Byron Nelson reminded me that with all the games we play our legacy will still be the imprint we leave on our fellow man. Reading about his accomplishments on the golf course is mind boggling … 11 straight victories and 18 in total in 1945 with a scoring average of 68.33, 113 consecutive cuts made in his career and several major championships to his credit. However, this was only a small part of his legacy. The true measure of the man lies with his charitable nature, notably the $94 million dollars raised for various charities by his PGA tour event in the Dallas area.

One anecdote I heard tells you all you need to know about the man. Apparently he and fellow pro Ken Venturi used to playing various matches at clubs throughout the nation. It is said that the first question he would ask on the first tee was what was the course record and who held it. If it was held by the local pro, he refused to eclipse it. He was supposed to have said," He lives here, we are just passing through." He passed through leaving very large footprints.

J. T. Holley adds:

One thing that isn't getting the "wow" headlines or, it's just in passing that it's mentioned, is the fact that at age 34 this Great Man had the inner courage to say "I'm done", and walk away at a very high point. This reminds me of the other J. T.'s lyrics "the secret to life is enjoying the passage of time". Mr. Nelson with a lot of chips on the table and a grandiose set of accomplishments decided that being at home on the range was more meaningful to him as an individual than continuing a sport that he had dominated. The irony is that many probably thought it was too early and he had much more to earn, the greater legacy is that he got out to be able to enjoy his family and watch his "legacy" compound for another 60 some years "enjoying that passage of time". Talk about a great example of create, buy and hold, and watch compound.

How many money managers are willing at a young age to step aside after compounding client fees and incentives in a relative short amount of time, to devote time to what they truly feel as individuals is really important?

David Higgs adds:

So often it takes the sad passing of an individual before his/her accomplishments are widely magazine-ized or hard bound. Wow, he did all this in 1945. Yet who are the Byron Nelson's of 2006? One immediately thinks of Tiger Woods and rightfully so. Yet, why is it so often that only in hind sight are such events/accomplishments recognized. The truth is, there are many Tiger Woods on the courts, the fields, the lanes, the diamonds. Thanks to technology, the mechanics of individual super stars of their fields are studied to the point of ultra refinement. By studying swings, strokes, strides, young muscles can begin to emulate those of the great. I suspect there will be many Byron Nelsons and the likes to come. We yearn our roots in many respects.

Sep

1

It is pleasing to me to see that there are few if any posts on this site regarding doomsday scenarios. Such are the kind that make owners of stocks and markets sell at the exact low. That has always been the way of syndicates, spread the news of impending pass of the dividend, and impending bankruptcy right before buying a tremendous line from the last sellers. Daniel Drew was famous for this with Erie stock, and in 1885 Worthington Fowler finally figured this out (helped by the advice of Colonel Smith) and bought a 1000 at 3, before writing 10 years on Wall Street in 1887. At the same time the chronic bear and ghost Jacob Little rushed from Trinity Church to New Street to short himself to his oblivion with the same stock … [read the full chapter entitled 'Drew Plays His One Stringed Lyre - Erie']

The same thing of course happens today with the markets. Right when we are hearing the most about how interest rates could never fall because Bernanke has to prove himself, or how SARS is going to destroy us all, how housing prices are going to rise 10% or oil go above 100, war in the Middle East is going to escalate, bombers are arrested in England, the President's popularity is at a new low, the Democrats are going to sweep the electorate, individual stocks are going up only on hype and there is chronic unemployment in factories in Bethlehem.

But such times are the time to buy, especially if the market has not gone up in a few years, and stock rate returns are 3% or 4% above bond yields.

I try not to allow such a coloring of the news from ghosts and fellow travelers of the modern-day syndicates to populate this site. You see, I would be doing you a big disservice, because you might think that there is more of a chance of doomsday now than any other time during the last 100 years when stocks went up 10,000-fold. If it were more likely, you would have to figure out whether that was bullish or bearish or whether it had been discounted, or whether there was anything on the other side that was more relevant.

I have tried, ladies and gentlemen, to provide an agenda for you free of propaganda, devoted to self improvement and an optimistic view of life that takes account of the resilience of the economy and the infinite nexus of connections that keeps the flow of capital and goods going; an agenda that takes account of the regularities between the shares of wealth, the Gini coefficients if you will, between those who take on risk and those who are indirect second-handers for the big traders trying to get you on the wrong foot so that they can quietly cover their positions at the bottom.

I hope it has not all gone in one ear and out the other.

Such marvelous insights have come from over 40 years of working in an environment as brutal and unforgiving an environment that exists on this planet — the management of OPM (Other People's Money).

Steve Leslie offers:

I add just a few thoughts pre-Labor Day weekend:

1. Crisis creates opportunity.

2. Confusion offers exploitation.

3. Those who are the least qualified are the most willing to offer advice.

4. Things are never as bad as they may seem, nor as good. They are somewhere in between.

5. It is better to win a small pot than lose a big one.

6. The general public usually has it wrong.

7. Listen to what people say, but watch what they do.

8. If someone is not committed to your success they most likely are committed to your failure.

9. Life is a journey, and not a destination.

10. We do not need to be told things as much as we need to be reminded.

11. Wherever you go, there you are.

12. And my all-time favorite: When you wrestle with a pig you both get filthy — but the pig likes it.

David Higgs comments:

In the book Fisherman's Luck, by Henry Van Dyke, 1899, there is a nice chapter titled, Lovers and Landscape. It begins with this quote:

He insisted that the love that was of real value in the world wasn't interesting, and that the love that was interesting wasn't always admirable. Love that happened to a person like the measles or fits, and really of no particular credit to itself or its victims, was the sort that got into the books and was made much of; whereas the kind that was attained by the endeavour of true souls, and had wear in it, and that made things go right instead of tangling them up, was too much like duty to make satisfactory reading for the people of sentiment.

239 pages full of preludes on old and foolish maxims, in 10 chapters. Very much a book that falls along the lines of Mr. Leslie's teachings.

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